Jin Bangda announced that shipments of IC cards in January-April 16 fell 23% year-on-year to 54 million, which we believe is structural and long-term. We cut Jinbang's profit forecast for fiscal year 16-18 by 17-19%, and forecast a 12% drop in real net profit for fiscal year 16. As a result, based on a price-to-earnings ratio of 8 times forecast earnings for FY16, our target price has been lowered from HK $3.1 to HK $2.6 (14% downward adjustment). The company's share price will be under pressure in the short term. Among the industry, we are bullish on Bai Fu Global (327 HK, buy, target price: HK $9.1).
Shipments from January to April of 16 decreased 23% compared with the same period last year.
Jin Bangda reported that total shipments from January to April of 16 years were 69 million, down 26% from 93 million in the same period last year. Shipments of IC cards, the main source of profit, fell 23% year-on-year to 54 million. Although we have mentioned in our first coverage report recently that the company's growth is expected to be sluggish in the medium to long term, shipments fell much earlier than we expected and fell sharply. Although Jin Bangda stressed in his announcement that its export sales recorded strong growth, we believe that overseas business is not significant and it is difficult to offset the sharp decline in the Chinese market.
Adjustment and prediction
Jin Bangda believes that the decline in shipments is due to the central government's active efforts to clean up and regulate China's Internet financial market (P2P, third-party payment). However, as the new demand for credit and debit cards slows, we believe the decline is structural. The number of new cards issued fell by 30 per cent from 722 million in 2014 to 506 million in 2015. Mobile payment has dealt a significant blow to bank cards, so we believe that the growth of card issuance will remain weak in the next three years. In addition, new competitors have joined the bank card market one after another, resulting in the loss of market share and price pressure in the existing industry. We expect Jin Bangda to record a decline in shipments and average selling prices, resulting in a pressure on gross profit margin and operational difficulties in the coming year.
Cut profits; remain neutral.
We have lowered our forecast for IC card shipments for FY16 from 245 million (15 per cent year-on-year) to 170 million (down 20 per cent on a year-on-year basis), thus reducing our actual net profit forecast for FY16-18 by 17-19 per cent. Overall, we now expect the company's real net profit to fall 12% year-on-year in fiscal 16, and 2% in fiscal 17, respectively. Based on the fact that the forecast price-to-earnings ratio for FY16 remains unchanged at 8 times forecast earnings, our target price has been lowered to HK $2.6 (14% downward adjustment). In the face of the market downgrade, Jin Bangda's share price will be under pressure in the short term. The upside risks of our rating include higher-than-expected average selling prices and gross margins; downside risks include lower-than-expected sales and fluctuations in the cost of IC chips.
Among the industry, we are more bullish on Bai Fu Global (327 HK, target price: HK $9.1) than Jin Bangda, and it is expected that its US EMV migration will become the company's profit growth engine in the next three years.
